Understanding Health Insurance Terminology: A Guide for Employers and Employees

Terminology

1. Premium

The amount you and/or your employer pays for your health insurance every month.

Context: Think of this like a subscription fee. Even if you don’t use any medical services, the premium ensures you’re covered if and when you do need care.

2. Deductible

The amount you pay out-of-pocket for covered healthcare services before your insurance plan starts to pay.

Context: Let’s say your plan has a $1,500 deductible. That means you’ll need to spend $1,500 on healthcare services before your insurance begins to cover additional costs.

3. Copayment (Copay)

A fixed amount you pay for a covered healthcare service, usually at the time of service.

Context: If you go to the doctor for a check-up, you might have a $20 copay. This is paid upfront, and the rest of the visit's cost is covered by your insurance.

4. Coinsurance

The percentage of the cost you pay for covered services after meeting your deductible.

Context: If your coinsurance is 20%, and your bill after meeting your deductible is $1,000, you would pay $200, and your insurance would pay the remaining $800.

5. Out-of-Pocket Maximum

The most you have to pay for covered services in a plan year. Once you reach this amount, your insurance covers 100% of the costs for covered benefits.

Context: This limit protects you from excessive medical costs. After reaching your out-of-pocket maximum, insurance takes over for the rest of the year.

6. Network

The group of doctors, hospitals, and healthcare providers that have agreed to provide services at negotiated rates for your health plan.

Context: Staying “in-network” often means lower out-of-pocket costs. Out-of-network care can be more expensive or might not be covered at all.

7. Formulary

A list of prescription drugs covered by your insurance plan.

Context: Plans have a tiered formulary that may cover generic drugs fully, while brand-name drugs could require higher copays or coinsurance.

8. Health Maintenance Organization (HMO)

A type of health insurance plan that requires members to use a network of doctors and hospitals. You typically need a referral to see a specialist.

Context: HMOs can save money but may limit flexibility in choosing healthcare providers.

9. Preferred Provider Organization (PPO)

A health plan offering more flexibility in choosing healthcare providers, including out-of-network providers at a higher cost. Referrals to specialists aren’t usually required.

Context: PPOs are more flexible than HMOs but may come with higher premiums and out-of-pocket costs.

10. Explanation of Benefits (EOB)

A statement from your insurance company summarizing the services received, what was covered by your plan, and what you may owe.

Context: It’s not a bill but a helpful breakdown of costs that lets you see how your benefits are being applied to your healthcare expenses.

11. High Deductible Health Plan (HDHP)

A plan with a higher deductible but lower premiums, often paired with a Health Savings Account (HSA).

Context: An HDHP is designed for people who want lower monthly payments and are willing to pay more upfront before insurance kicks in.

12. Health Savings Account (HSA)

A tax-advantaged account you can contribute to when enrolled in a high deductible health plan. Funds can be used to pay for qualified medical expenses.

Context: HSAs allow you to save pre-tax dollars for medical expenses, and the funds roll over year to year, making it a flexible long-term savings tool.

13. Out-of-Network

Healthcare providers who do not have a contract with your insurance company.

Context: Visiting out-of-network providers can lead to much higher costs or no coverage at all, so it’s important to check whether your provider is in-network.

14. Preventive Care

Routine healthcare services that include check-ups, screenings, and vaccinations intended to prevent illness.

Context: Most insurance plans cover preventive care at no cost to you, as it helps detect health problems early and reduces long-term healthcare expenses.

15. Annual Enrollment Period

The time once a year when employees can enroll in or make changes to their health insurance plans.

Context: Missing this window could mean waiting another year to adjust your coverage unless you experience a qualifying life event.